Yep, I Understand What Mr. Cass Means

by Don Boudreaux on May 30, 2020

in Financial Markets, Myths and Fallacies

Here’s a letter to someone who is displeased with my “Notable & Quotable” in yesterday’s Wall Street Journal:

Mr. Cowan:

I’m sorry that you find my “Notable & Quotable” in yesterday’s Wall Street Journal to be “disingenuous.” Disingenuity was neither my motivation nor goal.

You write that “when Oren Cass points out finance is ‘purely derivative’ he obviously means its role is secondary to the primary role of manufacturing.” You capture Cass’s meaning accurately, and it is precisely this meaning that I tried to explain is economically uninformed.

If the performance of each of two tasks, F and M, is required to result in outcome C, it makes no sense to describe either F or M as “secondary” and the other as “primary.” Both tasks contribute to C, and that’s all there is to it. Modern finance (F) is required for modern manufacturing (M) to take place, and the ultimate result of their combination – a result that would be impossible if either activity were to disappear – is a stream of goods and services for human consumption (C).

Finance is no more “secondary” to manufacturing than manufacturing is secondary to finance. Although, it’s important to note, both finance and manufacturing are means to the end of consumption. Neither finance nor manufacturing are ends in themselves; each activity derives its value ultimately from its contribution to people’s ability to consume.

I emphasize this latter point because in other of his writings Mr. Cass argues as if manufacturing – or, more generally, production – is an end in itself. He doesn’t understand the fact that work and other productive activities are productive only if and insofar as they enhance our ability to consume.

Donald J. Boudreaux
Professor of Economics
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA 22030


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